Summary

Markets remain nervous thanks to a combination of an escalation in the US-China trade tensions, the uncertainty over how the current situation with President Trump will play out and a mixed picture from the eurozone economy.

The minutes suggest a rate rise in just over a year from now, in September 2019, says one ECB watcher:

Frederik Ducrozet (@fwred)

ECB accounts: "Members widely expressed satisfaction that the communication of the June monetary policy decisions had been well understood by financial markets". Sep-19 hike still the baseline. https://t.co/OlPEsUAf1l

Strong emphasis on wage growth in ECB accounts echoing Draghi's comments in July, with one caveat though: "it remained to be seen to what extent wage inflation would translate into price inflation over time". pic.twitter.com/mX5dxTHM7h

Trade wars and protectionism threat to eurozone economy - ECB

Otherwise, the bloc’s growth was on track, the ECB believed which is why there was little disagreement on leaving its policy unchanged. It had already announced in June it would end its bond buying programme by the end of the year and keep interest rates steady at least until next summer. On trade tensions, the minutes said:

Uncertainties related to global factors remained prominent, in particular with regard to the threat of protectionism and the risk of an escalation of trade tensions...These tensions could generate a more general decline in confidence throughout the global economy, beyond any direct effects from the imposition of tariffs.

Sainsbury/Asda deal to be investigated by UK competitions watchdog

The proposed merger between supermarket chains Sainsbury and Asda will be investigated by the UK’s competition and markets authority.

The CMA said it will begin a detailed assessment into how any deal would affect competition for UK shoppers, and whether it would lead to less choice or higher prices. It will also investigate whether the deal would allow the merged company to squeeze suppliers.

The companies have asked for a fast track inquiry, and the CMA will accept this unless there are “valid objections.”

Thursday continued to be more notable for what didn’t happen than what did, with the FTSE avoiding the red despite a rocky set of mining stocks.

The UK index spent the morning flat at 7580, the gains from the likes of BP and Shell – Brent Crude shot up to $75 per barrel on Wednesday, though has pulled back below $74.50 this Thursday – countering the losses seen from Rio Tinto, Anglo American et al.

Helping the FTSE was a disappointing session for the pound. Having built up a head of steam against the dollar – admittedly one that is pretty paltry in comparison to its recent losses – sterling saw its rebound nipped in the bud by a hawkish set of Fed meeting minutes on Wednesday night, with cable slipping 0.3% to fall beneath $1.287. And even though the Eurozone’s manufacturing and services PMIs weren’t great, the euro also managed to have the edge over the pound, the single currency climbing 0.2%.

Turning to this afternoon, and with the US-China trade war heating up with the latest bout of tit-for-tat tariffing just as talks get back underway, the Dow Jones isn’t looking like it fancies doing much when the bell rings on Wall Street. The futures have the Dow dipping 25 or so points when the US session gets underway, a move that keeps it below the 25750 mark it has struggled to really push beyond with any longevity in the last few days.

The long-term challenges facing the retail sector are significant and won’t be resolved overnight. Subdued real wage growth and digital disruption continue to pile pressure on firms, while high street retailers continue to suffer under an out-dated business rates system.

UK retail sales stronger than expected - CBI

Signs of strength in the UK high street.

The latest distributive trades survey from the CBI shows a positive balance of 29 in August, compared to an expected fall to +13 from +20 in July. But the expected employment index - a quarterly index - fell to -35 in August, the lowest level since the fourth quarter of 2009 and down from a flat level in May.

China’s retaliatory measures following the latest US tariff move are more aggressive than expected, says ING Bank economist Iris Pang:

The $16bn revised tariff list from China includes medical equipment and automobiles when the US administration would like to help American automobiles fare better in the international market. We see this list as more punchy than the previous one even the amount involved stays the same at $16bn...

The uncertainty now lies in how China would retaliate qualitatively and this the main concern for markets rather than today’s tariffs implementation.

If the trade talks between China and the US do not yield positive results this week, the US is set to impose another 25% tariffs on $200bn of imported goods from China. The amount would be around half of the goods US imports from China, but China will only retaliate with tariffs on $60bn because the US doesn’t export as much. But China has repeatedly stated that it can retaliate qualitatively.

Qualitative retaliations could include placing administrative measures on US companies operating in China or following the US lead and leveraging ‘national security’ to prevent some American companies operating in the country. Given that ‘national security’ examination has recently been added as a clause in foreigners’ investment policies in China, this seems like a possibility.

US markets are expected to open fairly flat, as investors remain cautious in the wake of the trade tensions and President Trump’s troubles.

Most European markets are also virtually unmoved at the moment, but analysts are nervous about how long the hiatus will last. Joshua Mahony, market analyst at IG, said:

Early hesitancy for European markets reflects the ongoing political instability in the US, alongside uncertainty as the US-China trade talks come to a head ... The ongoing fears over the snowballing political picture in the US ... remain a driver of risk aversion in the US, with European markets largely outperforming in recent days. Comments from Trump that he did not break election campaign rules are far from allaying market fears, and there is a growing fear that this crisis could drive substantial losses at the mid-term elections in November ....

Today sees the US-China trade talks come to a head, with low market expectations likely to drive the response to any final announcement. There seems to be little headway being make over the months, and the inability of the Chinese to appease Trump’s demands mean that this is likely to rumble on for some time yet. However, with the bar set so low, there is also the potential for some sort of half-hearted announcement which sets out an agreement to work towards specific targets, in a similar ilk to that seen with the EU.

The trade tensions between the US and China are more likely to deteriorate this year and dampen global growth in 2019, according to Moody’s.

In its latest global outlook report, Moody’s says there are early signs that global growth has peaked. It expects the G20 countries to grow by 3.3% in 2018 and 3.1% in 2019. The advanced economies will grow 2.3% in 2018 and 2.0% in 2019, while G20 emerging markets will remain the growth drivers, at 5.1% in both 2018 and 2019.

But it added that “further tariffs, similar in magnitude to the newly proposed 25% US tariffs on $200bn of imports from China and 25% US tariffs on all auto and auto part imports, represent a disruptive downside risk to our baseline forecasts.” Madhavi Bokil, Moody’s vice-president and lead author of the report, said:

Most of the impact of the trade restrictions on economic growth will be felt in 2019. The magnitude of the macro impacts will depend on market sentiment. Tightening of financial conditions through asset price and currency adjustment and a broader hit to business and consumer confidence are now more likely than a few months ago and have the potential to derail the global economy.

Back with the trade wars, and here is our latest report on the new tariffs:

The US and China have escalated their ongoing trade war by implementing 25% tariffs on $16bn worth of imports on both sides, bringing the amount levied to a combined $100bn (£78bn) since July.

Beijing began implementing the new tariffs on Thursday, when the US said it would begin collecting extra duties in retaliation for what it claimed were unfair Chinese trade practices.

“China firmly opposes [the US tariffs] and has to continue to make necessary counterattacks,” China’s ministry of commerce said in a statement.

The latest round of tariffs comes as Chinese and US officials are due to meet in Washington for talks that few expect will bring an end to months of tit-for-tat threats and tariffs.

On Monday, Donald Trump told Reuters he did not “anticipate much” from the negotiations in Washington. The US president said any resolution would “take time because China’s done too well for too long, and they’ve become spoiled”.

The White House claims China steals foreign companies’ intellectual property or forces them to give it up, and that industrial subsidy programmes unfairly benefit Chinese businesses. The latest round of US tariffs target electronics, plastics, chemicals, semiconductors and other goods from the “Made in China” industrial plan to upgrade Chinese manufacturing capabilities.